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18.15 That's where we leave our live coverage this evening. Moody's announced today that it will complete its review of Spain this month. As always, we'll keep our eyes peeled for any more developments.

17.11 Stock markets in Europe have closed. The FTSE 100 in London ended the day down 0.2pc at 5,809.45, while the CAC 40 in Paris fell 0.6pc to 3,414.23, and Frankfurt's DAX 30 index slipped 0.3pc to 7,305.86.

The IBEX 35 in Madrid was the only European index to end the day in the black. It closed up 1pc, at 7,687.10.

17.02 That "no" by Señor Rajoy today has moved markets. This is what happened to the Dow Jones industrial average in America:

The Dow slipped 50 points immediately after Mr Rajoy denied that a bail-out request was imminent. A request is viewed as positive for Spain because it would trigger purchases of Spanish debt by the European Central Bank (Source: Bloomberg).

16.41 Mr Rajoy also adds that the government has agreed a fiscal consolidation path for next year with regional leaders, and discussed how to spread the burden between Madrid and the country's regions.

15.29 More rumours coming out of Greece, where reforming the country's labour market is top of the troika's agenda.

The Guardian's Helena Smith cites reports in the Greek media that European debt inspectors have demanded a radical overhaul of the labour market, while the government has signalled that it is willing to reduce the number of hours of rest between shifts from 12 hours to 11.

However, the two parties aren't singing from the same hymn sheet yet.

The troika reportedly also wants pensions over €1000 to be reduced by up to 15pc.

14.31 More on this "ring of fire". Mr Gross said:

To keep our debt/GDP ratio below the metaphorical combustion point of 212 degrees Fahrenheit, these studies (when averaged) suggest that we need to cut spending or raise taxes by 11% of GDP and rather quickly over the next five to 10 years. An 11% “fiscal gap” in terms of today’s economy speaks to a combination of spending cuts and taxes of $1.6 trillion per year! To put that into perspective, CBO has calculated that the expiration of the Bush tax cuts and other provisions would only reduce the deficit by a little more than $200 billion. As well, the failed attempt at a budget compromise by Congress and the President – the so-called Super Committee “Grand Bargain”– was a $4 trillion battle plan over 10 years worth $400 billion a year. These studies, and the updated chart “Ring of Fire – Part 2!” suggests close to four times that amount in order to douse the inferno.

And to draw, dear reader, what I think are critical relative comparisons, look at who’s in that ring of fire alongside the U.S. There’s Japan, Greece, the U.K., Spain and France, sort of a rogues’ gallery of debtors. Look as well at which countries have their budgets and fiscal gaps under relative control – Canada, Italy, Brazil, Mexico, China and a host of other developing (many not shown) as opposed to developed countries. As a rule of thumb, developing countries have less debt and more underdeveloped financial systems. The U.S. and its fellow serial abusers have been inhaling debt’s methamphetamine crystals for some time now, and kicking the habit looks incredibly difficult.

If we continue to close our eyes to existing 8% of GDP deficits, which when including Social Security, Medicaid and Medicare liabilities compose an average estimated 11% annual “fiscal gap,” then we will begin to resemble Greece before the turn of the next decade. Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline. Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the “Ring of Fire.

13.41 Dozens of disabled Greeks blocked the main entrance to the labour ministry on Tuesday, heckling the troika representatives as they entered a ministry building to start discussions. Many chanted: "We won't let it pass!"

A protester sitting in a wheelchair waits for the troika inspectors from the European Commission, the International Monetary Fund and the European Central Bank to arrive for a meeting at the Labour ministry in Athens on Tuesday (Photo: Reuters).

13.32 European debt inspectors are in Greece for a second day to try to agree on how to implement €2bn of cuts needed to unlock the next tranche of its bail-out.

The current minimum wage in Greece is 50 percent higher than in Portugal, 17 percent higher than in Spain, and 5-7 times higher than in Romania and Bulgaria.

Greece's government has already slashed the minimum wage by 22pc this year.

12.56 Following today's report on the EU banking sector, Michel Barnier, the commissioner responsible for internal market and services, has said that he will "put this report online for a period of public consultation, which will last six weeks".

After this period, the EC will fine-tune the report, he added. Speaking at a press conference with Mr Liikanen, Mr Barnier said:

This report will feed our reflections on the need for further action [...] I will now consider the next steps, in which the Commission will look at the impact of these recommendations both on growth and on the safety and integrity of financial services.

European Union Commissioner for Internal Market and Services Michel Barnier (R) and Erkki Antero Liikanen (L), the governor of the Bank of Finland and Chairman of the high-level expert group on possible banking reforms, give a joint news conference at the EU commission headquarters in Brussels on Tuesday (Photo: EPA).

Credibility: Despite ticking more reform boxes than any other government in the eurozone, Spain still suffers from a lack of credibility in the eyes of investors. The Rajoy government's political mismanagement and incompetence has made it doubly difficult for Spain to regain the confidence of the markets.

Banks: Even after a detailed independent external audit of the banking sector, scepticism about the scope and rigour of the stress tests persists. Not only are there concerns about the scope for further falls in property prices, other categories of loans are deemed to be at risk given the severity of the downturn. Many investors still believe that a definitive clean-up framework for Spanish banks has yet to emerge.

Fiscal austerity: Non-stop austerity in the teeth of a sharp downturn is undermining the credibility of fiscal policy. Fiscal slippages are likely to persist. The retrenchment is still too front-loaded relative to the state of the economy and there are significant implementation risks going forward.

Politics: The main risk factor in Spain right now is politics. A social backlash against austerity is likely to become more intense in the coming weeks and months. Catalonia's threat to secede is further politicising Spanish fiscal policy. For a government with a majority in parliament, Mr Rajoy's administration has become one of the least stable in Europe.

Spaniards turned out in their thousands to protest against austerity last week.

12.13 Nicholas Spiro at Spiro Sovereign Strategy says that "Spain is damned if it does and damned if it doesn't":

Practically every facet of the four-year-old Spanish crisis is proving intractable. No matter how hard the government tries to restore confidence, it often seems that it can do no right. Indeed not only is Spain caught in a vicious circle, its problems are piling up.

A year or so ago, Italy was the focal point for investor anxiety about the eurozone. Yet 2012 has been all about Spain.

Given the succession of reform measures introduced since the Rajoy cabinet took office, the government could be forgiven for feeling hard done by. The reality is that domestic determinants of Spanish risk are at least as, if not more, important as external ones.

Right now, both of these forces are fuelling uncertainty over the timing and effectiveness of an ECB-backed bond-buying programme and exacerbating concerns about Spain's ability to extricate itself from the crisis.

12.09 Mariano Rajoy has told his regional presidents that the country will not be asking for a bail-out in the coming days. The Spanish PM made thecomments at a dinner on Monday evening in Genova, according to Europa Press.

Spain's King Carlos talks to PM Rajoy during a family photo session at the start of the Regional Presidents Conference in Madrid on Tuesday (Photo: Reuters).

11.54 Here's what the group had to say about bonuses:

Incentive schemes: One essential step to rebuild trust between the public and bankers is to reform banks' remuneration schemes, so that they are proportionate to long-term sustainable performance. Building on existing CRD III requirement that 50% of variable remuneration must be in the form of the banks' shares or other instruments and subject to appropriate retention policies, a share of variable remuneration should be in the form of bail-in bonds. Moreover, the impact of further restrictions (for example to 50%) on the level of variable income to fixed income ought to be assessed. Furthermore, a regulatory approach to remuneration should be considered that could stipulate more absolute levels to overall compensation (e.g. that the overall amount paid out in bonuses cannot exceed paid-out dividends).

[...] limiting the incentives for excessive risk-taking due to high bonuses (variable remuneration) could be achieved, for example, by requiring a cap on the amount of bonuses compared to fixed annual pay. Having a clear regulatory cap would also substantially ease the task of the supervisory authorities in screening out undesirable remuneration policies. A clear cap would also reduce the pay wedge between business and risk management staff and help attract highly-skilled staff members into the latter functions. The regulatory requirements up to date do not yet effectively address the risk of excessive risk-taking and allow varying approaches by individual national supervisory authorities.

11.41 Bank of Finland Governor Erkki Liikanen, who led the report, said:

The group has concluded that it is necessary to require legal separation of certain particularly risky financial activities from deposit taking banks within the banking group

The activities to be separated would include proprietary trading of securities and derivatives, and certain other activities closely linked with securities and derivatives markets.

11.37 Banks need bigger capital buffers to protect themselves against potential losses from property loans, andbonuses should be partly paid in bonds that would bear losses in the event of a bail-out, an EU advisory group has concluded.

• Possible additional separation of activities conditional on the recovery and resolution plan,

• Possible amendments to the use of bail-in instruments as a resolution tool,

• A review of capital requirements on trading assets and real estate related loans, and

• A strengthening of the governance and control of banks.

The advisory group said that history had "shown that many systemic banking crises resulting in large commitments of public support have originated from excessive lending in real estate markets," and used the examples of Northern Rock and ABN Amro, which was bought by the Royal Bank of Scotland in 2007, to argue that the new euro-area supervisory authority "should make sure that capital adequacy framework includes sufficient safeguards against substantial property market stress." (Photo: Rex).

11.09 Portugal is “living in very difficult moments” but will meet the terms of its €78bn bail-out, according to the country's economy minister.

Alvaro Santos Pereira told a conference in Lisbon that the country could not afford to delay structural reforms.

Thousands took to the streets last weekend to protest against sweeping austerity measures agreed under the terms of its rescue package.

Demonstrators shouts during a protest by the General Confederation of the Portuguese Workers (CGTP) union in Lisbon on Saturday (Photo: Reuters).

The August Eurozone producer price data will not go down well with the ECB and likely tilt the odds further against an interest rate cut at their October policy meeting on Thursday. However, the spike up in producer prices in August was driven by higher energy prices as oil prices rebounded from their June lows, and the increase in core producer prices was relatively moderate. Furthermore, latest survey evidence from the European Commission indicate that manufacturers’ pricing expectations remain muted compared to long-term norms although they did pick up in September. Extended very weak manufacturing activity is maintaining serious pressure on companies to price competitively to gain, or even retain, business.

With the underlying inflation situation in the Eurozone still looking far from alarming and with the Eurozone almost certainly having suffered further GDP contraction in the third quarter and still facing a troubling outlook, we maintain the view that the ECB will take interest rates down from 0.75% to 0.50% in the fourth quarter.

10.35 Time for a quick market update. The FTSE 100 in London is flat at 5,285.11, while Frankfurt's DAX 30 index is up 0.4pc at 7,353.91 and the IBEX 35 in Madrid is up 1pc at 7,861.30. The FTSE Mib in Milan is up 0.8pc at 15,652.00.

10.18 Eurozone factory prices rose in August on the back of higher energy prices, according to official data.

Prices in the eurozone rose 0.9pc on a monthly basis and by 1pc across the EU, Eurostat said, with prices in the energy sector increasing by 2.4pc and 3.2pc respectively.

The European Central Bank holds its monthly meeting on Thursday. Economists expect the bank to leave interest rates unchanged.

09.55 The number of unemployed Spaniards rose to 4.7 million last month, according to the country's labour ministry. This takes Spain's unemployment rate to 24.63pc - the highest in the industrialised world.

The services sector was the hardest hit, with more than 85,000 job losses seen across the sector. The agriculture, construction and industry sectors saw fewer job losses last month.

UK Construction PMI data for September presents another bleak assessment of business conditions in the sector. The current stretch of falling new orders is now the longest seen for three years, reflecting shrinking underlying demand alongside delays in spending from both public and private sector sources. A lack of new projects meant that confidence in the business outlook remains close to its lowest since the UK economy nosedived into recession during 2008.

The Markit/CIPS UK construction PMI rose to 49.5 in September, from 49 in August. However, this is still below the 50 level that divides growth from contraction.

09.27 Downbeat news from Australia. The country's central bank warned that the growth outlook for next year has weakened as it cut interest rates by a quarter point to 3.25pc. That is the lowest level since the financial crisis.

Glenn Stevens, Governor of The Reserve Bank of Australia, said global weakness was weighing on the outlook, with Europe contracting and the United States only seeing modest growth.

"The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside," he said in a statement.

Moody’s rejected the official €59.3bn (£47bn) shortfall in bank capital calculated by financial consultancy Oliver Wyman. Based on the figure, Madrid said banks would only need to borrow €40bn from the eurozone – far below the maximum €100bn on offer.

The agency said banks would need between €70bn and €105bn “to maintain stability”. Separately, Banco Popular, the largest non-nationalised bank to fail a stress test, said it planned to raise €2.5bn to bolster its capital without taking international aid.

08.41 Equities are a little under the weather this morning, with London's FTSE 100 down 0.2pc to 5809. Markus Huber of ETX Capital said that traders were holding back due to those reports about Spain being ready to request a bailout:

European equity markets are trading lower this morning giving back a big chunk of yesterday’s gains on the back of reports that although Spain is supposedly ready now to ask officially for aid, the German government doesn’t appear to completely back this undertaking at least what the timing is concerned.

Furthermore pressure exerting on the markets is news out from Moody’s investors Service questioning the results of the most recent Spanish banking stress test and putting the potential amount of money needed almost twice as high as the official results.